Talking Technicals at Harvard

We had a blast visiting Harvard this week. I had never been to Cambridge before, campus was really nice. It was cool to meet some young kids interested in the markets and technical analysis. Truth is it was just an honor being there to share my charts and technical approach. The first Stocktwits Symposium at Harvard was definitely a success.

The boys and I took the train over to Boston on Tuesday morning so we could get some work done using the “free Wi-Fi” on Amtrak. It reminded me of the old AOL dial-up days because of how slow and inefficient it was. But I guess it got the job done.

First thing we did was head over to Harvard Square for Burgers at Bartley’s. This place was really hyped up so I went in with some pretty lofty expectations. And my delicious Newt Gingrich burger met them all. Or was it the Skip Gates that I had? I forget, but it had pineapple, and cheddar, and was 100% delicious. The place said, “Best burgers in the USA”. And they just may have been.

So I put my suit on and walked into Harvard. What happened next was pretty funny. I was thirsty so ran down to the vending machine for a water bottle. I only had a $10 bill so I put it in to pay for my $1.50 beverage. Next thing I know I had a waterfall of dimes and nickels coming out of this machine like I just hit the jackpot at the Bellagio. I wish there was a camera filming this. I was looking around and no one saw it, no one to help, just me by myself depositing a lifetime supply of nickels into my not-so-big suit pockets. Needless to say, I was coined, “JC Bag of Nickels” for the rest of the evening.

Showtime

Phil Pearlman did his thing talking about Psychology, Trading and Social Media. Did you know that the blogging platform WordPress has been downloaded 65 Million times? Even the New York Times uses this tool. It really is amazing how far we’ve come from more traditional publishing. And to think that this revolution is just getting started…

Downtown Josh Brown managed to keep the F-bombs to a minimum, while still hilarious in getting some great points across. I learned during his presentation that 8.6 Million households in the United States have over a Million dollars in Financial Assets (in addition to home value). He brought up some interesting stats on baby boomers and raised some great questions about where we’re headed as food for thought.

Todd Sullivan showed us some of the ways he analyzes potential stock investments. His philosophies are night & day to mine so it was awesome for me to be there and learn. The last thing I want to do is listen to someone go up there who is saying exactly what I would have said. For me it was a treat to hear Sullivan explain how he finds undervalued companies. But more importantly, I was curious as to how he manages risk. His response was interesting. He essentially creates a road map as to how he expects the company to progress over the next year or so. If something unexpected occurs, or something that the company was suppose to do or come up with doesn’t happen or happens differently, then all bets may be off. I’ve always wondered how fundamental guys manage risk without studying price like we do. So that was cool.

And then it was my turn. Before getting going, I asked a few questions to the room full of students, staff, and market participants. The first question was whether we would see the S&P500 hit 1600 first or 1100. In other words, is the next 20% move going to be higher or lower? The results didn’t surprise me; it was literally 50/50 bulls and bears. So basically, no one has any idea where we’re headed. Not shocking.

I asked what people were more interested in: Technical or Fundamental Analysis. Not what worked better, or what they’ve learned most about, but which one are you interested in more? Once again, the room was split right down the middle. Half the room was interested in technicals while the other half circled fundamentals. In this case, I was surprised to see so much interest in technical analysis. I was really impressed by that.

And just as a cool experiment, I asked, “If you had to buy just one stock and hold it for an entire year, what would it be? You can’t sell it for a whole year and you only get one”. Then I asked the same question, but this time you have to hold it for 10 years. There aren’t any right or wrong answers here, I just kind of wanted to see the thought process.

Not surprising, the stock chosen most was $AAPL, for both the 1 & 10 year scenario, representing about 10% of the responses. No other name was mentioned more than once for the 1 year example. For the 10 year, Berkshire A shares and Bank of America came in 2nd with the rest pretty diversified. Believe it or not, I only saw Facebook one time between both questions. Is this because none of the people polled thought it would be the best investment? Or because it isn’t public yet and no one really has a share price to go by? I don’t really know the answer to this one.

When Phil told me that I was going to be up there for 30-40 minutes, I really didn’t know what I was going to talk about. Phil said, “just put up your favorite charts”. I thought to myself, “I could be up there for hours. I’ve got charts for days“. But then I figured I would just talk about some of the different aspects of technical analysis. As I’ve mentioned here before, a lot of people simply don’t understand what technicians do.

I started out by asking the crowd what they thought technical analysis was. Some good answers came though like, Price & Volume. One gentleman felt that technical analysis was “backward-looking”. To his defense, he probably heard this one from someone else or read it somewhere. Chances are he probably hadn’t thought too much about how silly that sounded. Because of course it’s backward-looking. What isn’t? If we had information from the future, wouldn’t we spend all day looking at that? I know I would.

So I got the presentation going with some long-term charts: 120 year chart of the Dow Industrials, US 10-year yields since 1940, and my personal favorite historical Dow:Gold ratio. I told them that I thought it was important to understand where we’ve been to have any clue as to where we’re going. I was amazed at the amount of interest I got from the Dow:Gold ratio. Since it’s my favorite chart, I suppose that I take for granted how interesting the data is.

And then I just went into a discussion on Sector Rotation, Intermarket Analysis, Leading Indicators, Sentiment, Seasonality, and momentum. I got some really good feedback on the Momentum stuff. I talk about the Relative Strength Index (RSI) all the time and how I use it. But showing everyone a picture of the divergences, both bullish and bearish, I think went a long way.

The biggest thing I tried to get across was Risk Management. It almost doesn’t even matter how you get to the point of initiating your position. The most important thing is how much you’re willing to risk. Asking yourself the question, “where am I wrong”, is really the key. As Eli Radke put it, focusing on the Second Trade.

It was an honor to be there and I really had a lot of fun. I got to meet some great dudes from all over the country, cool kids still in College living the dream, as well as some professional market participants that I have a lot of respect for.

I’d do it again in a heartbeat. Great turn out, good crew, awesome food, and a bunch of us really learned a lot, which I think is the most important thing.

Thanks Stefan Cheplick for setting it all up. I hope you enjoyed it as much as we did.

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